QUOTATIONS:

The rise in CPI was a punch in the face. (CA, Feb 19, 2017) This is probably one of the reasons the March meeting shot up over 50% recently.

Watch for new features in coming weeks.

Weekly Essay – Curve Regimes:

I finished that article on regime change for a trade magazine, and it has been approved. It should be published some time in the next few weeks (I’m guessing). There was one part of it that I thought was particularly interesting that I wanted to highlight because it seemed very relevant to the current market. The market positioning has been “overly bearish” for some time, and partly as a result, the markets have not been able to sell off for most of this year. EDZ0 is UP 2bps on the year, despite much-better data and a hawkish FOMC. That’s got to be a head-scratcher for bears, but I think misinterpreting historicals are one of the causes.

The jist of my article was that algos are *overly* dependent on historicals, and are less likely to factor in the drivers that may have changed in the current environment, as compared to the historicals. But I suppose most human traders (including myself) can also be overly dependent on the historicals. The article highlights a number of major and minor regime changes one should factor in when looking at historicals to look at the present.

The two factors I wanted to highlight today are: CLICK TO READ THE REST OF THIS ARTICLE FROM THE CA WEB SITE

If you liked the Weekly Essay, I discuss some implications in a subsequent section. PURCHASE THIS ISSUE

Next Week: I discuss my thoughts on an action-packed calendar the next 2.5 weeks.

Other Delayed Market Comments from the CA Newsletter:

From the Value on the Curve Section:

NEW ** Fade groups of meetings that are “near fully” priced. Some combination of meetings are less likely than others.

From the News Takeaways Section:

Without knowing anything (typical), I tend to think that the tax plan disappoints. I can’t remember the last time someone promised something during an election and they surpassed expectations. Well, I suppose he actually did go overboard on immigration and Mexico (i.e. overdeliver to expectations). Hmm. But he probably needs to negotiate with Congress, and I think some of the more extreme proposals will be talked back to the center.
I mentioned we could get some civil disorder two weeks ago, and we are starting to get dribs and drabs of it. We had the “Day without Immigrants” (apparently last-minute) and we have a “Day without Women” coming up in 2.5 weeks (better organized). I don’t consider these Sid-Meier-worthy. But I did say it would take about 3 colossally stupid things. Trump hasn’t done anything new that was colossally stupid.
Greece is back in the news. It is somewhat shocking how the markets continue to think the #49 economy in the world matters. Apparently that 0.26% of global GDP is going to drive global bond markets, and is the linchpin to holding the EU together. All I see is a friend who owes some friends money and can’t pay. Either work something out and maintain the friendship, or you move on. In any event, expect the shenanigans to continue until the deadline – because this is how negotiations work.

Trade Summary from the Delayed CA Newsletter:

In the Trade Thoughts section, I discuss some implications of the Curve Regimes section. If you liked the Weekly Essay, you will like this. PURCHASE THIS ISSUE

OFFICIAL TRADE UPDATE: We added two new related trades, based on the “Rate Hike Framework” theme from the week before. Both have done well recently.

Forum Update:

The most notable posts from the Forum were:

I answer some viewer mail on how to look at what is priced into each Fed meeting. I also elaborate on how to set up a fed funds effective rate spreadsheet. CLICK TO READ THE REST OF THE POST ON THE CA FORUM